Property Investment Cycles: Understand The Cyclical Nature of Property Markets
Property cycles: All investments work in cycles. The stock market even has
trends that are updated to the second. Property cycles are fortunately much
slower than the stock market. It takes years to adapt to various property
cycles. If you can start to identify the industry indicators including that of
property cycles, you can position yourself to take advantage of them.
Property investment, like all other investments are influenced by certain
cyclical factors. These various factors, as with any other growth industry, can
be used to indicate market cycle changes. These cycles are dependant on a number
of factors and the biggest factors contributing to these cycles and impacting
considerable on a property portfolio are:
When interest rates are high, people are less inclined to invest in property as it costs a lot more to keep the investment. You pay the bank more for the money that you borrowed from them. This contributes to drive the demand for property down and as this happens, property prices stagnate and in some cases diminish to negative growth for certain types of properties.
Take a look at this interesting graph which makes interesting points about financial cycles in general
If interest rates are low, the cost of a loan is much less which means that
for the same amount of repayment to the bank, you could now afford two
properties in stead of one. As people buy more property, the demand for property
increases which invariably increases the price of property.
Other influences are the rate of the population growth, the supply and demand for property and specifically certain types of property at specific times, the country and the worlds economic situation, inflation rate and legislation. Obviously there are more reasons than just what was mentioned here that influence property and any investment cycles but these are some of the factors that will affect the markets directly.
Thanks to Graham Van Zyl for permission to reproduce this text.
What you need to know before making an offer to purchase.